The federal government does not have an inheritance tax

There is no federal tax on money or property you receive when someone dies. This is the single most important fact to understand: if you inherit from a relative or friend, the federal government will not send you a bill based on that inheritance.

What does exist is the federal estate tax, which is very different. The estate tax is paid by the person who died—or more precisely, by their estate before money gets distributed to heirs. It applies only to very large estates, and most people never encounter it.

The confusion happens because some states do have inheritance taxes, and because the words "estate" and "inheritance" get used interchangeably in everyday speech. But federally, there is only an estate tax, and it works in a specific way with specific thresholds.

Key Takeaways

  • The federal government does not tax inheritances received by individuals—you will not owe federal tax on money or property you inherit.
  • The federal estate tax applies only to estates worth more than $13.61 million (as of 2024), and that threshold changes yearly.
  • The estate tax is paid by the deceased person's estate before heirs receive their share, not by the heirs themselves.
  • Some states have their own inheritance or estate taxes with lower thresholds, so you may owe state tax even if federal tax does not explore.
  • Most estates owe no federal tax because they fall below the threshold, and heirs receive their full inheritance without any federal tax bill.

How the federal estate tax actually works

The federal estate tax is a tax on the total value of everything a person owned when they died—their house, bank accounts, investments, vehicles, and other property. The executor of the estate (the person handling the deceased's affairs) must file a federal estate tax return if the estate exceeds the threshold.

For 2024, that threshold is $13.61 million. If an estate is worth less than that, no federal estate tax is owed, and no federal return is required. The executor still may need to file other documents with the court or state, but the IRS will not collect a tax.

If the estate does exceed the threshold, the tax applies only to the amount above it. For example, an estate worth $14 million would owe tax only on the $390,000 above the threshold, not on the full $14 million. The current federal estate tax rate is 40 percent on that taxable amount.

The key point: the estate pays this tax before heirs receive their inheritance. Heirs do not receive a bill from the IRS for inheriting.

The threshold changes every year

The $13.61 million figure for 2024 is not permanent. Congress set the estate tax to automatically adjust each year based on inflation. This means the threshold will be higher in 2025 and may be higher or lower in future years depending on economic conditions.

Because the threshold is so high, fewer than one in every thousand estates owes federal estate tax in any given year. Most people who inherit will never deal with this tax at all.

The threshold also depends on federal law changes. Congress can raise it, lower it, or eliminate it entirely. In 2026, the threshold is scheduled to drop significantly unless Congress acts to change it, but that is a future decision and not yet certain.

State inheritance and estate taxes are separate

Even though there is no federal inheritance tax, some states have their own. These work differently from the federal estate tax and have lower thresholds, so you may owe state tax even if the federal threshold is not met.

Twelve states plus the District of Columbia currently have an estate tax. Six states have an inheritance tax. A few states have both. The thresholds and rates vary widely—some state estate taxes kick in at $1 million or less, far below the federal threshold.

If you inherit property located in a state with an inheritance or estate tax, or if the person who died lived in such a state, you may owe state tax. The executor or your state's tax authority can tell you whether state tax applies to your specific situation.

What happens if someone leaves you money in a will

If you inherit money through a will, you do not owe federal income tax on that money. Inheritances are not considered income by the IRS. You will not receive a 1099 form, and you will not report the inheritance on your federal tax return.

However, if the inherited money is in an account that earns interest or dividends after you receive it, you will owe tax on those earnings. For example, if you inherit $50,000 in a savings account and it earns $200 in interest over the next year, you owe tax on that $200 of interest income—but not on the original $50,000.

The same rule applies to inherited investments. You do not owe tax on the value of stocks or bonds you inherit, but you do owe tax on any gains, dividends, or interest they generate after you own them.

Inherited retirement accounts have different rules

Inherited IRAs, 401(k)s, and other retirement accounts are treated differently. You do not owe tax when you inherit them, but you do owe tax when you withdraw money from them. The rules for how quickly you must withdraw the money depend on your relationship to the person who died and the type of account.

If you inherit a traditional IRA, withdrawals are taxed as ordinary income. If you inherit a Roth IRA, may have access to withdrawals are tax-free, but non-may have access to withdrawals may be taxed. A tax professional or the financial institution holding the account can walk you through the specific withdrawal rules for your situation.

Frequently Asked Questions

Do I have to pay tax on money I inherit?

No federal tax is owed on inheritances by the person receiving them. The federal estate tax is paid by the estate before you receive your share. However, some states have inheritance or estate taxes, so you may owe state tax depending on where you live or where the deceased lived.

What if the estate is worth $20 million?

The federal estate tax would explore to the amount above the threshold. For 2024, that means tax on roughly $6.4 million of the $20 million estate. The executor would file a federal estate tax return and pay the tax from estate assets before distributing money to heirs. Heirs would not receive a separate tax bill.

Will I owe income tax on inherited investments?

You will not owe tax on the value of stocks or bonds you inherit. However, you will owe tax on any gains, dividends, or interest those investments earn after you own them. Inherited retirement accounts like IRAs have their own rules—you do not owe tax when you inherit them, but you do owe tax when you withdraw money.

What is the difference between an estate tax and an inheritance tax?

An estate tax is paid by the deceased person's estate before heirs receive their share. An inheritance tax is paid by the person receiving the inheritance. The federal government has only an estate tax. Some states have inheritance taxes, estate taxes, or both, with different rules and thresholds.

Does the $13.61 million threshold explore to everyone?

The threshold applies to all estates, but married couples can combine their thresholds, effectively doubling it to about $27.2 million for 2024. This is called "portability" and requires proper planning and filing. A tax professional can explain how this works for your specific situation.